Health Reimbursement Account (HRA)

What it is:

A health reimbursement account (HRA) is a sum of money set aside by a company to offset employee healthcare costs not covered by the company's health insurance plan.

How it works (Example):

A company establishes an HRA as a separate discretionary account that it funds on a periodic basis. These contributions are tax deductible for the firm, and the balance of the account may be used toward reimbursing employees for health expenses that the company's healthcare provider does not cover.

For example, if a company employee must pay for a massage therapy treatment that is not covered but has been specifically prescribed by an orthopedic surgeon, the company may reimburse that employee for the cost of the massage using an HRA.

Why it Matters:

An HRA is a discretionary account unrelated to a company's healthcare plan. Companies are under no obligation to maintain an HRA as part of their employee benefits and are free to cut such a provision without notice. It is important that employees are aware of this, though companies are generally less likely to forego HRAs in an environment of rising healthcare costs.

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